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How to Revive California’s Economy

The previous post, “Balancing California’s Budget,” recommends spending cuts that extend well beyond incoming Governor Brown’s proposed budget (ref. Full Budget Summary), especially in the areas of (1) entitlements, (2) prisons, and (3) education. In all these areas, the case is made that thoughtful restructuring and downsizing of these institutions will actually improve societal outcomes. At the same time, as Governor Brown himself has included in his own budget proposal, state worker salaries and benefits need to be lowered to competitive market rates. But making these reforms to put California into a situation of budget surpluses is only half the battle to revive California’s economy. At the same time, new government initiatives combined with new private investment – spurred by deregulation – are necessary to maximize the speed of California’s economic recovery, and lay the groundwork for a new golden age in the golden state.

Here are some projects – public or private or both – that will make California great again. They are based on a simple premise: It is the job of government to invest in infrastructure that will make energy, water and transportation less expensive, not more expensive.

(1) Build nuclear power plants:
The latest generation of nuclear power technologies are safer than ever, and there is an abundant supply of nuclear fuel within North America. Adding a few nuclear power stations in California would have a dramatic impact on the price of electricity. Claims that nuclear power is more expensive than alternative energy are based more on the cost to overcome regulatory hurdles and lawsuits, not the actual construction costs, and certainly not the fuel costs. Nuclear power development is a key element towards delivering cheap energy again in California.

(2) Build an LNG terminal off the California coast:
Along with new North American sources of natural gas from shale, there is abundant natural gas around the world, and a global market exists for liquified natural gas that is transported by tanker. A few years ago an LNG terminal was proposed to be built fourteen miles off the coast in Ventura County, but was nixed by California’s legislature. By receiving LNG tankers 14 miles offshore, and piping in the less hazardous gaseous fuel, this terminal would not have posed any threat, however remote, to onshore communities, and would allow California to diversify their sources of this abundant and clean fossil fuel.

(3) Build desalination plants off the Southern California coast:
Desalination technology has advanced to the point where it is now possible to desalinate a cubic meter of seawater using less than 2.0 kilowatt-hours of electricity. Put another way, the energy necessary to desalinate seawater is now less than the energy currently required to pump an equivalent unit of seawater over the mountains from the California aqueduct into the Los Angeles basin. Because the California current is one of the biggest ocean currents in the world, the brine that would be discharged from 10 million acre feet of fresh water recovered from seawater would have an insignificant environmental impact. The brine could be discharged through pipes that would run atop the seabed with the outfall 10 miles offshore where the California current would disperse it immediately. Desalination is a key element towards delivering cheap water again in California, and like nuclear power, claims that desalination is prohibitively expensive are based more on the cost to overcome regulatory hurdles and lawsuits, not the actual construction costs, and certainly not the operating costs. For more on desalination at scale, ref. “Sverdrups & Brine,” and “Affordable Desalination.”

(4) Develop new surface storage and aquifer storage for storm runoff:
California’s system of reservoirs provide ample fresh water to agriculture, industry and residential/commercial users in years with normal rainfall, but inevitably there are cycles of drought when the existing water storage infrastructure is inadequate. It is probably possible to add another 5 million acre feet of storage without resorting to high dams by identifying areas within the Central Valley where runoff can be collected in great bulk and kept there until spring irrigation draw-downs begin, or systematically transferred to underground aquifers. The capacity of underground aquifers to store water in California is still poorly understood, but California’s water commission estimates there could be 10 million acre feet or more of underground water storage capacity in California. There is plenty of runoff, even in drought years, that isn’t being harvested. To allow California’s agricultural industry access to cheap, abundant water (agriculture consumes well over 80% of the fresh water diverted in California), better storage of storm runoff is essential. For more ref. “California’s Water System.”

(5) Widen and upgrade interstate freeways:
Along with freeway upgrades, widen and upgrade all major freeways, highways and boulevards in California. Widen and retrofit bridges and tunnels. California needs smart lanes on upgraded roads, not the “bullet train.” As energy becomes abundant and cheap – and technology guarantees this will occur – the most convenient personal transportation appliance ever conceived, the automobile, will become even more indispensable. Cars of the future will be not only clean operating and fuel efficient, but will go faster than ever and be capable of operating on autopilot. To participate in this revolution in transportation, Californians need to upgrade their roads, not attempt to discourage people from using them by neglecting their maintenance, upgrades, and expansion.

(6) Upgrade existing rail corridors:
It is not necessary to develop bullet trains for passenger transportation in a state that will never have more than 50 million people living along an 800 mile corridor. But fast intercity rail, using existing track that is upgraded to tolerate speeds of 120 MPH is a viable proposition, particularly if these upgraded rail lines are also still utilized for faster freight transportation, which will always be more efficient via rail. Diverting public funds into bullet trains and light rail is folly, when immediate returns would accrue to investments in better roads and better existing rail. For more on the economic futility of a bullet train in California, ref. “Bullet Train Boondoggles.”

(7) Streamline permitting process and allow more mines and quarries:
California has abundant mineral resources, but nothing can be developed without years of permit applications and legal battles. As a result, basic raw materials have to be imported at far greater cost than necessary. Making development of mineral resources in California more expensive than virtually anywhere else on earth robs Californians of jobs, and constitutes a drain on every facet of California’s economy that relies on these resources.

California has a gigantic, diverse economy – nearly 2.0 trillion in economic output each year. But California has an energy, water and transportation infrastructure that was built for 20 million people, in a state that now approaches 40 million in population. It is ironic that the Governor who once sold the freeway corridors owned by the state, held in reserve for future transportation corridors, is the same man who has just taken office again. Back in the 1970’s, Jerry Brown presided over the dismantling of California’s plans for infrastructure development, at the same time as he signed legislation enabling unionization of California’s government workers. Today we are suffering the ultimate consequences of this decision, as we live in a state where overpaid state and local government workers collect the tax revenues that should be put to use to maintain and expand our energy, water and transportation infrastructure.

Compounding California’s policy decision to fund over-market government employee compensation instead of infrastructure investments is the crippling impact of environmental regulations. Realistic, ongoing revisions to regulations enforcing environmental quality are desirable, but the current fixation on regulating anthropogenic CO2 emissions is a tragic mistake. Global warming “mitigation” is environmentally useless (ref. “Investigating Climate Alarmism“), and it ignores the following: Less expensive energy, water and transportation form the basis of increased prosperity, and as prosperity increases, literacy increases and birthrates decrease. This, in-turn, leads to a lower maximum population globally, which results in reduced pressures on resources and wilderness.

Spending taxpayer’s money on infrastructure development that will yield cheaper energy, water and transportation, causes a lower cost of living at the same time as it stimulates more rapid economic growth. This translates into higher tax revenues which can then be used to pay higher wages and benefits to government workers. By enacting policies that deliberately make resources more expensive, while paying over-market wages and benefits to government workers, policymakers have put the cart in front of the horse. They have gotten their priorities reversed.

California is a truly exceptional place, a land of staggering resources and breathtaking natural wonder, with world leadership in art and technology. California’s high-tech entrepreneurs should abandon their lobbying for global warming mitigation legislation, which will force people to consume needlessly expensive energy, rationed water, and inefficient transportation. Instead they should lobby for the projects set forth here, which will put money back in the pockets of consumers, enabling them to buy high tech innovations still barely imaginable – from geriatric cybernetics to space tourism. If energy, water and transportation were cheap instead of “green,” rationed, and expensive, California’s technology industry can direct itself towards providing qualitative improvements to the lives of an aging, prosperous population.

14 comments to How to Revive California’s Economy

Editor – I agree fully with the first six of your proposals. Number 7, concerning mines, is somewhat more problematic. Extractive industries and mining in particular produce vast amounts of toxic waste. In Colorado, for example, the total cost of cleaning up the toxic runoff from abandoned mine tailings is expected to exceed the total value of all the gold and silver removed from those mines over a century of mining.

Unless we have some significant controls on mining, and probably continuing controls on oil extraction and the disposal of nuclear waste as well, we will end up poisoning the environment for the same descendants we hope to protect economically.

Upgrading rail corridors will become increasingly important as the U.S. is required to compete with the expanding middle classes of China and India for world oil. As oil prices reach $150 or $200 per barrel, it will become less economically feasible to rely on trucking to move food and other essentials. Railroads will have a competitive advantage in pricing per shipping pound, created by the economy of scale they possess at such levels.

One other thought. You don’t have to always agree with Thomas Friedman’s politics, but he has made some excellent points about our world competitors:

“Even if climate change proves less catastrophic than some fear, in a world that is forecast to grow from 6.7 billion to 9.2 billion people between now and 2050, more and more of whom will live like Americans, demand for renewable energy and clean water is going to soar. It is obviously going to be the next great global industry.

China, of course, understands that, which is why it is investing heavily in clean-tech, efficiency and high-speed rail. It sees the future trends and is betting on them. Indeed, I suspect China is quietly laughing at us right now. And Iran, Russia, Venezuela and the whole OPEC gang are high-fiving each other. Nothing better serves their interests than to see Americans becoming confused about climate change, and, therefore, less inclined to move toward clean-tech and, therefore, more certain to remain addicted to oil. Yes, sir, it is morning in Saudi Arabia.”

Skipping Dog: Your first comment endorsing recommendations 1-6 but questioning #7 is intriguing. Don’t you believe there are problematic aspects to all of these recommendations? I certainly do. But what legitimate environmentalist objectives seek to accomplish is to minimize the negative ecological impacts of all of these projects. And you can’t build or upgrade powerplants, water infrastructure, or roads and rail, unless you have mines and quarries. There won’t be any construction material. So I would suggest the solution has to include recommendation #7. Clearly none of these categories of development should be exempt from environmental management and controls – but this management has to be reasonable and cost-effective.

As for Friedman’s point about population growth, my primary point remains this: If you develop cheap, clean conventional energy (and China is developing coal and nuclear power as the backbone of their energy economy for the future, are you kidding?), you create prosperity. And prosperity is proven to correlate to lower birth rates. The faster the global economy grows, the sooner global population will stabilize. This is why I believe defining “clean” energy as excluding anything that results is CO2 emissions is a tragic mistake. In my opinion (based on reading the BP Statistical Review of Global Energy Reserves), there is enough coal, oil and gas to supply 1.0 quintillion BTUs of energy per year for at least another 300 years. That is twice the current rate of total global energy consumption. I think we should develop this energy at the same time as we develop alternative energy – which I believe will be a combination of nuclear power, some solar, and renewable combustibles.

Endorsing your proposals most surely doesn’t mean they are without problems of their own, but, like you, I think their potential value is likely to outweigh their implementation costs (financial, political, and social).

Editor – One additional comment, if I may. I had the opportunity to travel to China eight years ago. Whatever else it may be, it is an ecological disaster zone. The air in every major city is unbreathable, the waterways are polluted, and even our official guide/interpreter admitted that many, many children are born with birth defects attributable to the pollution.

Prosperity is good, but we shouldn’t trade our health and the health of our children for it.

Skipping Dog: I agree with you about China’s pollution challenges. What’s interesting is that the coal-fired power plants China is building are among the cleanest burning coal plants in the world. Most of the air pollution in China’s cities are from residents who use coal to heat their residences – so hopefully the development of a centralized power grid in China will be one of the keys to finally cleaning up their urban air pollution.

The goal of many environmentalists in addition to protecting the environment is to prevent anything from being built.

I spent nearly ten years trying to reopen an existing surface mine in the Mojave desert and was unable to do it. Meanwhile aggregates had to be shipped from a permitted site in Barstow at a cost of 10 cents per ton mile and large amounts of diesel being burned in the desert for nothing to maintain our freeways.

Sand and aggregates for the Oakland Bay bridge were barged in from Canada. Concrete sand for San Diego comes from beaches in Mexico.

The California Department of Conservation has an ongoing program for reclaiming surface mines that makes sense, but eco-warriors do everything they can to drag their feet.

Editor, Your ideas are excellent, but unfortunately they will need to follow California’s restructuring post-insolvency wherein it rejects 75% of the promised pensions & retiree healthcare.

Even if there was a “hard freeze” on pensions so there would be zero further growth, the $500 Billion of unfunded liabilities associated with already accrued pensions would prevent any new “golden age” in CA for decades.

Tough Love: Reviving California is not impossible if enough of the following happens:

1 – Spending reforms are enacted dramatically lowering costs for government employee compensation and benefits (especially at the local level).

2 – Spending reforms are also enacted to dramatically lower the costs of state and local governments, especially in the areas of education, welfare and entitlements, and prisons.

3 – California’s economy begins to recover, raising revenues and creating large surpluses, which are not squandered by resuming profligate spending in the areas of (1) and (2).

4 – The ability of environmentalists to bring lawsuits is legislated down to a more reasonable level, reducing costs for infrastructure development.

5 – The necessity to pay “prevailing wages” and adhere to inefficient union work rules is eliminated through legislation.

6 – The private sector is enlisted as an investor; most of the seven recommendations are infrastructure developments that can be largely funded via private sector investment.

What well intentioned opponents of these budget and legislative reforms should consider is the fact that by enacting these reforms, and investing in these infrastructure developments, the cost of living will go down in California. People will be able to enjoy a higher standard of living even if they earn less. That is one of the leaps of faith necessary to revive California’s economy.

I don’t know what you and TL consider “dramatic” reductions in compensation and operating costs, but you’d be very hard pressed to wring even a full 10% out of those areas. Even if you were successful in doing so, it would be under agreements likely requiring a resumption of service and compensation levels when the economy eventually rebounds.

It’s also hard to see how you’ll be able to square reduced access to the courts for “environmentalists” with the system of law we currently have. Most environmental lawsuits are brought in the Federal Courts, so state level changes would have a negligible effect. The EPA will continue to bring lawsuits for federal violations and there has never been any serious discussion about repealing CEQA.

The removal of prevailing wage requirements for government contracts may be possible, but prevailing wages are pretty low now as it is. The primary mover in such repeal efforts has consistently been the Associated Building Contractors organization, and their interest in it is not only to use it for union busting but to line their own pockets with a greater percentage than might be available to them in a union shop. I don’t personally benefit one way or the other, but you’ll find well funded and organized opposition to any such effort in California.

Telling people that the reforms you suggest are good medicine that will – someday – reduce their own cost of living in California will also be a very tough sell. California has always been an expensive place to live, but we’ve had support for our lifestyle from immigrant farm workers and huge infusions of federal money for our defense industry since at least the WWII era. With that federal support inevitably slowing or drying up completely, it’s difficult to see how we convince people that implementing these ideas won’t just turn us into Mississippi.

SkippingDog, Addressing your 1st paragraph, reducing future year pension accruals to a 1%-1.5% factor (call it 1.25%) from the current 2.5-3% would likely drop taxpayer pension contributions (as a % of pay) by 10% from what they would otherwise need to be….. not that we have the available funds to actually pay what “needs” to be paid. This would STILL leave the HUGE problem of paying off the $500 Billion of unfunded liabilities. Not as optimistic (unemployment, housing, do not look like short-term problems) as Editor, I believe a confluence of positive elements need to come together to overcome this nut.

Where you show the “entitlement mentality” is assuming that …”agreements likely requiring a resumption of service and compensation levels when the economy eventually rebounds.” If the adjustment simply brings future year accruals in line with the private sector, why should we re-start the root cause of the problems… excessive pension accruals?

TL – It’s not the “entitlement mentality” that will prevent your desire, but a recognition of how deals are actually made. Neither side will get all it wants, and there will be some kind of sunset provision included with any distasteful medicine administered.

I know absolutists like yourself detest the deal making process, but it’s the central component of our democratic republic form of government and and essential element of every business transaction. Nobody wins with an all or nothing approach to anything.